Pay off debt or invest
Compare whether it's better to pay off debt early or invest that same money, based on your debt's interest rate and the return you expect from investing.
Results
Which is better?
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Equivalent value of paying off debt
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Final value if you invest
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Difference between both options
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Paying off debt is treated as a guaranteed return equal to the debt rate: payoff value = amount × (1 + debt rate/100)^years. Investing is calculated the same way but with the expected return: invest value = amount × (1 + expected return/100)^years. Whichever gives the higher final value wins.
When should you use this calculator?
This calculator helps decide what to do with available money when you have outstanding debt (a mortgage, a loan) and could also invest it instead: do you pay down principal to reduce the debt, or invest expecting a return higher than the interest you're paying? Enter the amount available, your debt's interest rate, the annual return you expect from investing, and the time horizon to compare both options.
How it is calculated
Paying off debt early is treated mathematically as if that amount "earned" the debt's interest rate on a compounding basis, since every euro used to pay down the debt stops generating that interest going forward: equivalent value = amount × (1 + debt rate/100)^years. Investing uses the same formula but with the expected investment return instead of the debt rate. This is a simplification: for loans with a fixed monthly payment (standard amortization), the real savings from prepaying also depend on where you are in the schedule — for an exact calculation of that savings, use the loan or mortgage calculator.
Practical example
With the default values — €10,000 available, debt at 6%, expected investment return at 7%, over 10 years — investing gives a final value of €19,671.51 versus €17,908.48 for paying off debt: in this example, investing wins by €1,763.04. If the debt rate were 8% instead of 6% (with the same 7% expected return), paying off debt would win instead, since the debt's guaranteed rate would exceed the investment's expected return.
Common mistakes
The most common mistake is comparing the two rates without accounting for their different nature: the debt rate is a guaranteed saving (100% certain), while the investment return is an expectation that might not materialize — there could even be losses. Another common mistake is ignoring taxes: interest on personal debt usually isn't tax-deductible, while investment gains are typically taxed when sold, which reduces the real net return of investing compared to the gross figure compared here.
Practical tips
The bigger the gap between the debt rate and the expected investment return, the clearer the math — but the real decision also depends on your risk tolerance: paying off debt is the only one of the two options with a guaranteed outcome. A common middle-ground strategy is to split: pay off part of the debt (especially if its rate is high) and invest the rest if your financial situation and risk profile allow it.
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Frequently asked questions
Is it better to pay off debt or invest?
It depends on whether the expected investment return exceeds the debt's interest rate: if it does, investing gives a higher final value mathematically; if not, paying off debt is the higher-value option. But paying off debt is a guaranteed outcome, while investing isn't.
Why is paying off debt treated as a guaranteed return?
Because every euro used to reduce a debt's principal stops generating that debt's interest forever, which is equivalent to "earning" that rate safely, without the risk associated with investing in markets.
Does this calculator account for my loan's actual amortization schedule?
No: it uses a simplification (paying off debt = earning the debt rate on a compounding basis) that doesn't depend on the amortization schedule. For an exact calculation of the savings from an early repayment at a specific point in your loan, use the loan or mortgage calculator.
Does this comparison account for taxes?
Not explicitly: it compares gross returns. In practice, investment gains are taxed when sold, reducing their real net return, while interest on personal debt usually isn't tax-deductible — worth keeping in mind when interpreting the result.
Can I combine both strategies?
Yes, it's a common approach: pay off the portion of debt with the highest rate (or all of it, if the rate is high overall) and invest the rest of the available money if your financial situation allows it and you accept the investment risk.
What if my debt has a variable rate?
The calculator's result is based on the rate you enter at that moment; if your debt has a variable rate (for example, tied to a reference rate), the real rate can change over the horizon considered, so it's worth rechecking the calculation periodically with the updated rate.